Republic of Tajikistan and the IMF

Supplementary Letter of Intent
December 8, 2002

Press Release : IMF Approves Three Year, US$87 Million Poverty Reduction and Growth Facility Arrangement for the Republic of Tajikistan


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Tajikistan—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

November 13, 2002

The following item is a Letter of Intent of the government of Tajikistan, which describes the policies that Tajikistan intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Tajikistan, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.
 

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street, NW
Washington, DC 20431

1. Over the past several years, the Government of Tajikistan has implemented a program of economic reform with support from the IMF's Poverty Reduction and Growth Facility (PRGF). In June 1998, a three-year PRGF arrangement was approved in an amount equivalent to SDR 96 million (or 110 percent of quota). In response to the Russian crisis, access was raised to SDR 100.3 million. This arrangement expired in December 2001 with SDR 78.3 million having been disbursed.

2. Under that program, we significantly improved macroeconomic stability through the implementation of appropriate macroeconomic policies. The implementation of structural reform was somewhat less successful, but over the past year our efforts in this regard have also improved. We recognize the importance of structural reform to ensuring sustainable growth and we plan to intensify our efforts in this area.

3. During the first half of this year, we implemented a Staff Monitored Program (SMP) aimed at reinvigorating our commitment to economic reform. Under the SMP, we observed nearly all of the quantitative targets and implemented most of the structural measures. In particular, we adopted measures that enhanced fiscal transparency; strengthened the independence of the National Bank of Tajikistan; reduced quasi-fiscal deficits in the energy sector; and improved our debt management capacity. We have also recently submitted our Poverty Reduction Strategy Paper that sets out the actions we plan to take in order to reduce poverty in Tajikistan.

4. Unfortunately, effective debt management has continued to be a challenge for us. We regret the earlier incidents of misreporting and are committed to strengthening our institutional capacity to avoid such incidents in future. Unfortunately, under the SMP we allowed external payment arrears to again accumulate on government-guaranteed debt. This stemmed, in part, from confusion over the requirements for entering into negotiations with our commercial creditor. These arrears, however, have now been cleared.

5. Building institutions including the National Bank of Tajikistan (NBT) is an important element of our economic strategy. We will work to strengthen central bank independence, bolster its financial condition, and improve its operation. In this regard, I would like to advise you that the NBT has received full repayment for the directed credits it issued in July and August of this year.

6. Together with the IMF missions that visited Dushanbe in April, July and October this year, we reached understandings on an economic program. We are requesting support through the IMF's Poverty Reduction and Growth Facility (PRGF), in an amount equivalent to SDR 65 million (75 percent of quota). The Memorandum of Economic and Financial Policies attached to this letter sets out the details of the economic program covering the period October 1, 2002-September 30, 2005. The first and second reviews under the PRGF arrangement are scheduled to take place by May 15, 2003 and November 15, 2003, respectively.

7. We have also recently submitted our Poverty Reduction Strategy Paper that sets out the actions we plan to take in order to reduce poverty in Tajikistan. In this regard, we would note that since the PRSP was finalized, more recent data has become available that has led us to revise slightly some of our projections for 2002 and the medium term. These latter projections form the basis for our current policies and we plan to realign the PRSP with these projections at the time of the first annual progress report.

8. The Government believes that the policies described in the Memorandum will enhance the prospects for achieving the objectives of our economic program for 2002. We intend to remain in close consultation with Fund staff on the adoption of any measures that may be appropriate, in accordance with IMF policies on such consultation, and will provide the staff with information it requests for monitoring economic developments and progress in the implementation of polices and in reaching the objectives of the program supported by the PRGF arrangement. In addition, the Government stands ready to take any further measures, in consultation with Fund staff, on economic and financial policies that might be necessary to ensure that the overall objectives of the program can be attained. In order to enhance transparency of our economic policies, we request that this letter, the Memorandum of Economic and Financial Policies, and the Staff Report be published on the Fund's website.

Very truly yours,

/s/


Emomali Rakhmonov
President of the Republic of Tajikistan


REPUBLIC OF TAJIKISTAN

Memorandum of Economic and Financial Policies
for the Period October 1, 2002 to September 30, 2005
Supported under the Poverty Reduction and Growth Facility

I. Introduction

1. Since 1996, the International Monetary Fund (IMF) has supported economic reform in Tajikistan, most recently with a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) Trust.1 Economic reform has been uneven due to weak institutions, the civil war and external shocks. In the early stages of the program, this uneven implementation was reflected in an erratic macroeconomic performance.

2. During the PRGF arrangement, we observed many of the quantitative performance criteria but some of the structural reform measures were not fully implemented. Fiscal policy was generally satisfactory but monetary policy targets were frequently missed. Although external shocks complicated monetary policy, inadequate policy instruments, a weak banking sector, and a lack of independence hindered the operations of the National Bank of Tajikistan (NBT). In particular, the NBT's inability to resist pressure for directed credits was responsible for many of the missed targets and periodic surges in inflation.

3. During the third annual arrangement, we observed more of the quantitative targets and improved macroeconomic stability. Our progress with structural reform continued to be uneven and we accrued external payments arrears that resulted in misreporting to the Fund and several noncomplying disbursements. While the first and second reviews of the third annual arrangement were completed, the third and final reviews were not.

4. In 2001, real GDP grew 10 percent and during the first eight months of this year increased by 8 percent. The leading sectors continue to be agriculture (cotton and wheat) and aluminum. Inflation performance improved last year and in early 2002, but subsequently it weakened. During the first nine months of 2002, cumulative inflation was 10.2 percent and it will likely be higher than we anticipated at the end of the year. Both spillover effects of strong regional demand and another lapse in monetary policy account for this development. The recent expansion of reserve money also contributed to a depreciation of the somoni in the curb market, after remaining relatively stable through most of the past 18 months.

5. The current account deficit widened in 2001 because of a deterioration in the terms of trade and a sharp decline in exports. While we received sufficient inflows to finance our balance of payments deficit last year, future financing may be problematic because of concerns about our heavy external debt burden. The current account deficit is projected to decline to 4.2 percent of GDP this year because of an increase in the volume of exports. At the end of 2001, gross international reserves were equivalent to 1.9 months of import cover and are projected to rise to 2¼ months by the end of this year.

6. In the context of a Staff Monitored Program (SMP) covering January-June 2002, we continued our efforts to achieve greater macroeconomic stability and to reconfirm our commitment to structural reform. We observed most of the targets for key fiscal and monetary variables for end-March and end-June 2002, and did not accumulate new wage or pension arrears. Regrettably, external payments arrears accrued to a German commercial bank in conjunction with our efforts to restructure that loan, however, we have now cleared all arrears. Our fiscal performance during this time was particularly strong, with a surplus of SM 14.8 million, compared with a projected half-year deficit. Since the end of the SMP, our fiscal performance has remained strong. Monetary policy, however, moved off track with reserve money exceeding its target because of weak institutional capacity that led to unsterilized intervention in the foreign exchange market and directed credits. The NBT has since removed this excess liquidity and taken steps to improve policy implementation including better supervision of liquidity management and improved coordination between departments.

7. Under the SMP, we implemented most of the measures that constituted structural benchmarks, although some with a delay. We introduced measures to strengthen the independence and financial condition of the central bank; addressed weaknesses in the banking sector; amended legislation to enhance the transparency of the state audit agency; reduced energy sector arrears; and we developed a detailed inventory of our external public- and publicly-guaranteed debt. In connection with this exercise, we have written to our external creditors asking them to confirm our understanding of our external debt obligations. In October we issued a presidential decree regularizing financial relations between the NBT and the government including the reconciliation of all obligations on market terms. We also issued a resolution that eliminated the role of local government officials in planning or allocating cotton production and cotton exports.

8. At end-2001, the total of public and publicly guaranteed external debt was US$1,024 million, equivalent to 100 percent of GDP. We recently restructured our debts to Kazakhstan, Belarus and Uzbekistan on significantly better terms. We have also initiated discussions on debt restructuring with Russia in order to achieve full financing of the program for the first year. In our view, the debt service relief offered through such a restructuring will allow us some room to expand social programs and raise public sector wages, in an effort to alleviate poverty.

9. Since the beginning of this year, we have demonstrated our strong commitment to macroeconomic stabilization and structural reform. This Memorandum of Economic and Financial Policies (MEFP) outlines our strategy for continuing this reform and is derived from and is consistent with the Poverty Reduction Strategy Paper (PRSP) that we submitted to the Executive Board of the Fund in October 2002.

II. Program objectives and policies

10. The goals of the PRSP can best be accomplished through sustained growth, low inflation, exchange rate stability, and effective policy implementation. For 2002-05, we project real GDP growth to be at least 5 percent annually and inflation to decline to 5 percent by the end of the period. These goals, together with a stable exchange rate, would lead to an improvement in per capita incomes (in U.S. dollar terms) of about 15 percent over the next several years.

11. An important focus of our economic program will be to improve debt management and fiscal sustainability. We plan to limit the size of our foreign-financed public investment program (PIP) to no more than 3 percent of GDP and to reduce the quasi-fiscal deficit in the energy sector. The anticipated debt restructuring with Russia will provide significant debt service relief. Taken together, these measures will help bring about the needed adjustment in the balance of payments. Over the period 2002-05, we expect the current-account deficit to decline to 3.6 percent of GDP, and our gross international reserves to increase to 3.2 months of imports.

12. Implementing restrictive fiscal and monetary policies will be necessary to meet the program's quantitative targets (Annex I). To improve the prospects for sustaining economic growth, we will implement key structural reform measures (Annex II). To demonstrate our ownership of the new program we will implement a number of prior actions before the scheduled Executive Board meeting on December 11, 2002 (Annex III).

A. Fiscal Policy

13. We have improved our fiscal discipline and reduced the overall budget deficit to ¼ percent of GDP (excluding the foreign-financed PIP) this year from 3 percent in 1999. This reflects our success in controlling current public expenditures and increasing tax revenue collections. Over the period 2002-05, we project only a modest increase in current expenditures to 15 percent of GDP reflecting our desire to maintain tight fiscal control. This increase in spending will be financed by increased tax revenues resulting mainly from better tax and customs administration (see below).

14. We have reduced our medium-term public-investment project (PIP) plans and the associated foreign financing requirement in recognition of our high external debt, limited absorptive capacity, and the implications for recurrent costs in the budget (for operation and maintenance). The PIP is projected to be no more than 3 percent of GDP annually for the program period. If we can further strengthen our revenue collection and institutional capacity, we will (in consultation with Fund staff) reassess the size of the PIP at a future date.

15. During the remainder of 2002, we expect to achieve a small improvement over the fiscal parameters contained in the Staff Monitored Program. Instead of an overall fiscal deficit of 1 percent of GDP (excluding the PIP), we expect a deficit of ¼ percent of GDP for 2002. If there is an over-performance on tax revenues, we will allocate this toward further social spending to alleviate poverty, while maintaining the overall deficit target.

16. In accordance with understandings contained in the SMP, we increased civil service wages by 40 percent effective January 1, 2002. Due to savings from attrition and the reduction of bonus payments, however, the wage bill is projected to increase by only 25 percent this year. Although this increase is significant, it is necessary given the serious erosion in public sector real wages in recent years. (The majority of public sector employees live below the poverty line.) The 2002 budget allocated SM 110 million for wages, but under the SMP we reached understandings that SM 103 million would be sufficient given anticipated vacancies. We now estimate, however, that SM 105 million will be required to finance the wage bill because attrition was slightly less than anticipated.

17. For 2003, we plan to increase civil service wages by 20 percent beginning April 1, thereby increasing the total wage bill for the 2003 budget by 15 percent to SM 120 million. Expenditure on pensions, stipends and benefits will be increased accordingly. By end-June 2003, we will establish a public sector payroll database and a monitoring system for vacancies that will improve control over the wage bill. In addition, we will finalize a timetable for rationalizing the civil service by end-March 2003. In June 2003, we will, in consultation with Fund staff, re-assess the prospects for a further increase in public sector wages based on achieving our tax revenue targets and reducing civil service employment.

18. As for social sector spending, the 2002 budget allowed for a small increase compared with 2001. This reflects higher education outlays and transfers to households including social security and pensions. By the end of this year, the Ministry of Finance will develop a detailed classification of budgetary expenditures to allow for better monitoring of expenditures. During the program period, we will also ensure the timely payment of pensions, wages, and transfers at all levels of government. As such, maintaining a zero ceiling on pension and wage arrears will constitute a quantitative performance criteria in our program that will be monitored on a continuous basis.

19. The successful execution of our fiscal policy will depend on our ability to improve revenue collection. In the 2002 budget, we plan to increase tax revenue collection to 15.4 percent of GDP. Because we are not ready to introduce a VAT on cotton, we will not implement the planned reduction of the sales tax on cotton and instead will maintain this tax at 10 percent through the end of 2003, at which time we will assess the prospects for moving to a VAT.

20. Recently we created a Ministry of State Revenues and Duties (MSRD) to improve tax and customs administration. We have also simplified the income tax rate structure and broadened the tax base, and increased the rates on excise taxes (for example, alcohol and tobacco). (By the end of the year, we will, however, unify the excise tax on domestic and imported alcohol.) Parliament has authorized the government to introduce a pilot unified agricultural tax in several regions, and we will introduce this initiative from January 1, 2003. Taken together, these measures should help to ensure that our tax revenue target for this year is met.

21. We will continue to improve tax and customs administration, using the guidance provided by recent Fund technical assistance. We will establish by end-November 2002 a modernization office within the MSRD that will coordinate and oversee implementation of reform. Our main priorities are to restructure the ministry, reform and simplify the tax code, and to strengthen the large taxpayer inspectorate. We plan to request further Fund assistance in pursuing these measures so that we can complete this strategy by the end of this year.

22. In the meantime, we will continue to make incremental improvements in tax administration, by expanding the number of taxpayers under the jurisdiction of the large taxpayer inspectorate based on a number of criteria; appointing a commission (with participation of government officials and the private sector) with a mandate to simplify the tax code (end-November 2002); and encouraging strong tax collections through the introduction of a performance-based remuneration scheme. As an interim measure, we will include a provision in the 2003 budget law that allows the MSRD to retain 20 percent of tax revenues derived from undeclared revenues discovered during the course of audits by the ministry.

23. An important priority for the government is to raise the efficiency and return on capital expenditures, especially those related to the foreign-financed PIP. For 2002, we have limited foreign-financed PIP expenditures to US$30 million (3 percent of GDP) although our investment requirements are significantly larger than this amount at present. PIP expenditures are limited by our capacity to: (i) absorb investment funds; (ii) provide counterpart funds for projects; (iii) finance future operation and maintenance costs associated with these investments; and (iv) to prioritize projects to reflect our required (social) rate of return. To enhance the transparency of public spending on the PIP and its impact on both the budget and external debt, we will incorporate fully such spending into the 2003 and subsequent budgets. In addition, we will improve the monitoring of PIP expenditures, through the establishment of a PIP unit within the Ministry of Finance by end-March 2003. This unit will be responsible for tracking such expenditures, and for developing criteria on which to judge the costs and benefits of current and proposed projects. To further improve fiscal management, we will also include all extra-budgetary revenues and expenditures of budget entities in the government's quarterly budget plans. To facilitate the reconciliation of discrepancies between the treasury and the NBT we will develop a bank reconciliation form by end-December 2002.

B. Monetary and Exchange Rate Policies

24. The success of our program depends heavily on the ability of the NBT to maintain a disciplined monetary policy to reduce inflation. This can only be accomplished if the central bank acts responsibly and is independent. During the second half of this year, we expect a modest increase in money demand. The central bank has targeted reserve money growth of 9.3 percent during July-December 2002. Given the greater confidence in the banking system and the local currency, we anticipate a further decline in the velocity of broad money and an increase in the money multiplier during 2003, such that reserve money is projected to increase by 11.8 percent. Net domestic assets of the NBT are programmed to be SM 97.8 million at end-December 2002. We expect our net international reserves (NIR) to improve substantially and to reach US$41.2 million by the end of 2003.

25. In order to encourage a more efficient distribution of credit between banks, the NBT will introduce and supervise an interbank credit market by end-November 2002. NBT intervention in this market on a trial basis will begin in December 2002. To ensure equitable treatment of all banks, the NBT will revise the reserve requirement regulation such that all deposits are subject to reserve requirements with the exception of government deposits and foreign liabilities by end-November 2002.

26. The loan collection agency of the NBT (ALCO) was reestablished as a department within the central bank with responsibility for collecting loans on behalf of the NBT. It will attempt to collect the outstanding stock of overdue private sector loans, currently totaling SM 151.7 million, by end-June 2003. To help this effort, the government will form a working group by end-November 2002 to examine the asset portfolio of ALCO and develop proposals for terminating ALCO's operation by end-June 2003. The working group will have representatives from MOF, the NBT and other government agencies as appropriate. The assets in the portfolio will be assessed in terms of the likelihood of repayment. Further, the working group will make proposals as to the guarantor of the loan. There will also be an audit of ALCO to ascertain its assets. In light of the decision to close ALCO, the NBT will (by end-November 2002) repay the charter capital that was paid into ALCO by commercial banks.

27. The NBT will maintain a managed floating exchange rate regime. In the event of unexpected private capital inflows, the central bank will accumulate reserves beyond the program targets. In the case of unexpected outflows, the central bank could allow a depreciation of the somoni. In order to comply with the obligations under Article VIII, Sections 2, 3 and 4, of the Fund's Articles of Agreement, we will work with Fund staff to remove all restrictions that are identified on payments and transfers for current international transactions.

28. Recognizing the importance of central bank independence in October we issued a presidential decree that (i) eliminates the requirement that the NBT refund or transfer any part of the difference between interest payments due to the NBT on bonds and securities issued by the government and interest payments due to the government on deposits at the NBT, and (ii) requires that market interest be paid on all government deposits at the NBT and all obligations of the government held by the NBT. In order to improve the efficiency of the NBT, we will finalize a plan for rationalizing operations by end-December 2002. This rationalization will be completed by end-March 2003. We will, however, reduce staff by 10 percent by end-December 2002 and another 10 percent by end-June 2003. We will close two branches of the NBT by end-March 2003. We also plan to improve the efficiency of monetary operations by centralizing all accounting functions in a single department by end-March 2003.

29. Further, the NBT will continue to be prohibited from issuing directed credits or other forms of preferential access to credit. This prohibition will be a continuous structural performance criterion under our program. It will ensure that market interest rates are paid on all NBT credit transactions, including credit auctions and sales of NBT bills. In line with the Fund's Safeguard Assessment of the NBT, a further continuous structural performance criterion will be established to ensure that the NBT does not engage in any activities or expenditures that are unrelated to its core business activities or pay dividends while it has negative net worth. We will ensure that the NBT completes (by end-December 2002) an unqualified external audit of its financial statements for the financial year ending April 30, 2002 in accordance with international accounting standards. We will also put in place a mechanism to reconcile reserves data by external audit semi-annually (during the interim and final audits) and by the Internal Audit Department on a regular basis.

C. External Policies and Debt Management

30. We are committed to maintaining a liberalized trade and investment regime. We do not impose any non-tariff barriers to trade and we further reduced average import tariffs as of May 1, 2002. We recently reduced the number of tariff-exempt goods but continue to exempt humanitarian aid and goods imported by international organizations, from tariffs. We have also applied for accession to the World Trade Organization and are receiving technical assistance to facilitate our membership.

31. During the program period under the PRGF arrangement, neither the government nor the NBT will, without Fund approval, introduce new or intensify existing restrictions on the making of payments and transfers for current international transactions. Nor will we introduce or modify any multiple currency practices, conclude any bilateral payments agreements that are inconsistent with Article VIII of the Fund's Articles of Agreement or impose or intensify restrictions for balance of payments reasons.

32. Our heavy external debt burden poses a threat to economic stability. Consequently, we will pursue further fiscal consolidation and limit all foreign borrowing. To better manage our external debt, we will adhere strictly to the law that vests sole authority to undertake and guarantee external loans in the MOF. Further, we will not draw on any outstanding non-concessional credit facilities. In particular, we will advise the Iranian authorities that no further borrowing under their export financing facility will be made unless the terms of the facility are renegotiated on concessional terms. To improve the transparency of our external obligations, the government will submit quarterly reports to parliament on its external debt situation, including debt service obligations and accumulated arrears.

33. We continue to strengthen our debt management capacity and have completed a detailed inventory of the status, terms, source and size of our external stock of government and government-guaranteed debt. This inventory also includes the debt of state-owned enterprises. We have written to all of our bilateral external creditors to confirm the details and status of our external obligations. We will update the information contained in this inventory on a quarterly basis, so that concerns about the timely reporting and servicing of our external debt obligations can be minimized. The Swiss authorities, in collaboration with the IMF have agreed to finance technical assistance, training, and equipment to further strengthen our debt management capacity in the Ministry of Finance beginning in November 2002.

D. Structural Reform

34. There are numerous structural reform measures that need to be implemented to achieve sustainable economic growth. Foremost among these are weaknesses in the banking sector, distortions in the energy sector, government interference in the agricultural sector; and weak governance.

35. To prevent weak banks from eroding the growing but fragile confidence in the banking sector, we have introduced several measures. We have developed a strategy for restructuring Amonatbank. By end-December 2002, the budget will contribute SM 575,000 to Amonatbank's capital stock and the bank will be allowed to resume limited lending operations (25 percent of eligible loanable funds can be invested in non-government assets) beginning November 1, 2002. The budget law for 2003 will require that all government agencies using the services of Amonatbank pay fees for these services beginning January 1, 2003. At that time, Amonatbank will also begin to pay interest on all government deposits. The 2003 budget will contribute SM 1 million to the capital of Amonatbank. Further, we will waive the minimum capital requirement until end-June 2003 for Amonatbank because it is still operating under a restructuring agreement. We plan to divide Agroinvestbank (AIB) in two; i) a non-bank financial institution that concentrates on cotton financing and (ii) a commercial bank that fully satisfies all prudential requirements. This may include recapitalization of the bank by issuing long-term government bonds for a portion of the loans in the bank's portfolio. We will submit a plan that includes these elements to Fund staff by end-November 2002.

36. In order to prevent the emergence of new problem banks in the future, we will enforce all prudential requirements for all banks by end-March 2003. Banks that are not being restructured and do not fulfill the prudential requirements by end-March 2003 will be closed or merged by end-September 2003. We will increase the minimum capital requirement from US$1.5 million to US$2 million by end-December 2003 but make special provision for smaller banks that meet the other prudential requirements. Waivers to the liquidity requirements will be removed and the liquidity requirement on all deposits will be reduced from 75 percent to 35 percent for those banks that meet the prudential requirements during the preceding six months. Enforcement of prudential requirements will be strengthened by on-site inspections of at least 4 banks by end-March 2003.

37. Over the next three years, we will pursue a comprehensive energy sector reform with a view toward eliminating quasi-fiscal activities. We are working closely with the Asian Development Bank in the electricity sector to improve collection rates, raise tariffs to cost recovery levels, and provide the state-owned enterprise (Barki Tajik) with funding for upgrading its capital equipment and management restructuring. We plan to move quickly to improve the financial prospects of the other state-owned enterprises in the energy sector. We will improve payment discipline by ensuring that Naftrason does not accrue any new arrears.

38. Beginning in December 2002, we will adjust all utility tariffs on a quarterly basis to account for changes in the nominal exchange rate. We will increase gas tariffs in order to reflect 80 percent of the cost of importing and distributing gas. By end-March 2003, we will increase gas tariffs to 100 percent of the cost of importing and distributing gas. Specifically, by end-December 2002 (structural performance criterion) we will introduce a uniform gas tariff of SM 140 per thousand cubic meters and to SM 175 per thousand cubic meters by end-March 2003. We will also unify all tariffs for industry, services, budgetary organizations and agriculture.

39. We will move aggressively to raise collection rates among consumers of gas. As of end-September 2002, Tajikgas had increased its collection rates to 30 percent for households and to 100 percent for all other categories of gas users, where the collection rate is defined as percent of payments not more than 60 days overdue. Collection rates for households will be increased further to 60 percent by end-June 2003 (structural performance criterion), 75 percent by end-December 2003, and 90 percent by end-June 2004.

40. To reduce the social impact of energy sector reforms, we will prepare a plan in consultation with Fund staff by end-November 2002 for mitigating the effects of higher energy tariffs on low-income households. This plan will include a timetable for the mandatory installation of gas meters in all households and enterprises. The 2003 budget law will provide SM 12 million for the compensation mechanism. In this regard, we will complete preparation of a compensation scheme that will take effect January 1, 2003 that is targeted to low-income households. Given our intention to focus compensation on all low-income households, we will eliminate all other privileged categories of consumers of electricity, gas and heat by end-December 2003.

41. A critical element of our structural reform program is focused on increasing private sector activity in agriculture in order to improve productivity and reduce poverty. We plan to privatize the remaining 225 state-owned farms by the end of 2005 through the issuance of land use and land share certificates. During the period July-December 2002, we will restructure 40 large state farms and issue the corresponding land use and land share certificates. During 2003, we will restructure 75 large state owned farms and issue the corresponding land use and land share certificates.

42. Public sector intervention in the agricultural sector remains an obstacle to productivity gains and to attracting private investors to the sector, especially with regard to cotton. We will continue to impress on local authorities that they cannot interfere with financing, production, and pricing decisions of any farm. We have reinforced this message by issuing a presidential decree on September 25, 2002 that abolishes "cotton balances" as a tool for planning or allocating cotton production and export proceeds and that effective immediately, cotton financing and export contracts need to be vetted and registered with only the Cotton Exchange. The same resolution abolished the monopoly of the Agroinvestbank in granting "deal passports" as export authorization and indicate that such authorization will be issued only by the commercial bank responsible for financing the inputs of the particular exporter.

43. Agriculture, and in particular the cotton sector, debts have grown to an unsustainable level. While the government cannot assume financial responsibility for all of these debts, the level of debt has become an impediment to farm restructuring and privatization. To eliminate the current moral hazard problem, a government resolution clarifying that the debts of state farms are to be passed on to the dekhan farms in proportion to their land share in the former state farm will be issued no later than end-November 2002. A mechanism for dealing with the debts of state farms that are too large to be assumed by any potential private farmers will be submitted for government consideration no later than end-December 2002.

44. Over the course of our program, we will also work to improve economic governance by reducing excessive government intervention in economic affairs, enhancing transparency, accountability and economic management, and by further establishing a stable, rule-based competitive environment. A number of measures we plan to adopt address these issues, for example, including the PIP and extra-budgetary revenues and expenditures in future budgets; strengthening the independence of the central bank and supervision of commercial banks; and addressing quasi-fiscal activities in the energy sector. These measures will reduce economic distortions and the potential for corruption, and thus lead to more efficient resource allocation.

45. An important element in our effort to improve governance is the state audit agency that we created last year. The agency's role is to monitor all government and commercial entities to ensure that any public resources they receive are not misappropriated. The agency is now fully operational, however, it is too early to assess its impact. We are developing a program of audits for the agency and we will consult with Fund staff on the agency's audit priorities to make sure it is effective in fulfilling its intended role. In this regard, we will give high priority to overseeing the activities of regional and local authorities.

III. Program Monitoring

46. The PRGF arrangement is anticipated to support the program for the three-year period October 1, 2002-September 30, 2005, with the first year extending over the period October 1, 2002-September 30, 2003. The first year of the arrangement will be monitored through two reviews by the Fund's Executive Board based on semi-annual performance criteria (for end-March 2003 and end-September 2003), structural performance criteria, indicative targets, and structural benchmarks.

47. Quantitative performance criteria and indicative targets for the first year program are specified in Annex I. The quantitative performance criteria are: a floor on net international reserves of the NBT; a ceiling on net domestic assets of the NBT; a ceiling on net credit by the banking system to the government; a ceiling on the cumulative overall fiscal deficit of the general government, excluding the foreign financed public investment program; a floor on cumulative tax collections of the Ministry of State Revenues and Duties; a zero ceiling on the contracting or guaranteeing of new short-term nonconcessional external debt with original maturity of up to and including one year; and a zero ceiling on the contracting or guaranteeing of new medium- and long-term nonconcessional external debt with original maturity of more than one year. No new wage and non-working pensioners' pension payments arrears and no new external payments arrears (except for arrears that are subject to debt-rescheduling negotiations) shall be accumulated (monitored on a continuous basis). Detailed definitions and reporting requirements for these performance criteria are contained in the Technical Memorandum of Understanding attached to this memorandum. In addition, the program includes adjustors on net domestic assets of the NBT; net international reserves; net credit by the banking system to the government; and the overall fiscal deficit (excluding PIP) to reflect excess/shortfalls of the disbursement of (non-project) foreign loans and cash grants, privatization receipts, and any overdue or rescheduled debt service obligations. The structural performance criteria are detailed in Annex II.

48. The first review of the program is scheduled to take place on or after May 15, 2003, based on performance as of March 31, 2003, and the second review is scheduled for November 15, 2003, based on performance as of September 30, 2003. At the time of the first review, those quantitative and structural performance criteria for September 30, 2003, as well as structural benchmarks, may be revised in light of developments.

49. The government and the National Bank of Tajikistan believe that the policies described herein will further strengthen our macroeconomic stabilization and structural reform efforts, and that they are adequate to achieve the objectives of our economic program. We intend to remain in close consultation with the IMF in accordance with IMF policies on such consultation and will provide the IMF with information it requests for monitoring economic developments and implementation of policies under the program. In addition, the government and the NBT stand ready to take further measures, in consultation with the IMF staff, which might be necessary to ensure that the overall objectives of the program can be achieved.

50. To promote transparency, we hereby request that the letter of transmittal, and the Memorandum of Economic and Financial Policies be published on the IMF website.

ANNEX I

Tajikistan: Quantitative Performance Criteria for the First Annual Program Under
the Proposed PRGF Arrangement, October 2002–September 2003

(In stocks; unless otherwise indicated)
  2002
 2003
End-Dec.End-Mar.End-Jun.End-Sep.


Indicative
targets
Performance
criteria
Indicative
targets
Performance
criteria

   (In millions of somoni)
  1.Ceiling on net domestic assets of the NBT 97.8  87.7 91.5 55.5 
  2. Ceiling on net credit of the banking system to general government-75.6  -81.3 -78.5 -113.8 
  3. Ceiling on the cumulative overall fiscal deficit of the general government1,2
(excluding foreign-financed public investment program)
-25.8  -24.2 -31.1 -37.5 
         
  4. Ceiling on general government wage, and nonworking pensioners' pension arrears30.0    0.0  0.0  0.0  
  5. Floor on tax collection of the Ministry of State Revenues and Duties193.3  191.3 302.6 401.0 
          
  (In millions of U.S. dollars)
  6. Floor on total net international reserves22.4  26.0 27.3 42.4 
7a. Ceiling on the net disbursement of short-term external debt with original maturity of up to and including one year40.0  0.0 0.0 0.0 
7b. Ceiling on the contracting or guaranteeing of medium and long-termnonconcessional external debt with original maturity of more than one year40.0    0.0  0.0  0.0 
  8. New external payments arrears30.0  0.0 0.0 0.0 
          
  (In millions of somoni)
Indicative target:        
Reserve money 165.1  165.9 173.2 182.6 
          
Memorandum items:         
Program exchange rate (SM/US$)3.0  3.0 3.0 3.0 
Disbursements of balance of payment support
   (in millions of U.S. dollars)5
26.7  0.0 0.0 12.5 

Sources: Tajik authorities; and Fund staff estimates.
1Cumulative from October 1, 2002.
2On a cash basis, the ceiling will be adjusted downward by 100 percent for any rescheduled interest payments and for any accumulation of arrears.
3A continuous performance criterion.
4By the government, NBT or any other agency acting on behalf of the government as defined in the Technical Memorandum.
5Disbursements in Q4 2002 and Q3 2003 are expected from the World Bank and the European Union.

ANNEX II

Tajikistan: Structural Performance Criteria and Benchmarks for the
First Annual Program Under the Proposed PRGF Arrangement,
October 2002-September 2003

Structural Performance Criteria

  • Continuous: Prohibit the National Bank of Tajikistan (NBT) from issuing directed credit.

  • Continuous: Prohibit the NBT from making expenditures not related to its core business activities or paying dividends while it has negative net worth.

  • By end-December 2002, the government will introduce a uniform gas tariff of SM 140 per thousand cubic meters.

  • By end-June 2003, increase the collection rates of Tajikgas so that on average 60 percent of all households pay for the gas they receive.

Structural Benchmarks

  • By end-December 2002, the NBT will finalize an inventory of all guarantees, pledges, and other NBT contingencies under the control of the Head of the Accounting Department with required inputs from all areas of the NBT.

  • By end-December 2002, the government will finalize a plan for mitigating the effects of higher energy tariffs on low-income households and ensure that the 2003 budget provides adequate resources for implementing the plan.

  • By end-December 2002, the government will implement automatic quarterly adjustments of all utility tariffs to account for changes in the nominal exchange rate.

  • By end-March 2003, the government will finalize a timetable for downsizing the civil service.

  • By end-September 2003, close or merge all banks that are not being restructured and do not fulfill the prudential requirements as of end-March 2003.

ANNEX III

Tajikistan: Prior Actions for Executive Board Consideration
of the Proposed PRGF Arrangement

Prior Actions

  • Submit to parliament a draft budget for 2003 that is consistent with the parameters and main macroeconomic framework as discussed with Fund staff.

  • Initiate debt restructuring discussions with Russia to achieve full financing of the program for the first year.

  • Ensure that all external payments arrears are cleared, in particular, those pertaining to two government-guaranteed loans from two German banks.

  • Complete the regularization of financial relations between the NBT and the government by issuing a government resolution that will convert outstanding private sector credits held by the NBT into domestic government debt.

  • Issue a presidential decree that will prohibit intervention of local authorities in the financing, production, and pricing decisions of cotton farmers and cotton producers. In particular, we will abolish the use of "cotton balances" that allocate cotton production and cotton export proceeds.


1The Executive Board of the IMF approved the arrangement in June 1998, with access of SDR 96 million. Access was raised to SDR 100.3 million (115 percent of quota) in December 1998. The arrangement expired on December 24, 2001 with total disbursements of SDR 78.3 million having been made.

REPUBLIC OF TAJIKISTAN

Technical Memorandum of Understanding
for the PRGF Arrangement 2002–2005

1. This memorandum defines variables that constitute quantitative performance criteria and indicative targets under the Poverty Reduction and Growth Facility Arrangement (PRGF), and sets out the reporting requirements for the authorities and the National Bank of Tajikistan (NBT).1

I. Quarterly Targets

A. Fiscal Deficit of the General Government

Table 1. Ceiling on the Cumulative Overall Deficit
of the General Government

 (In millions of somoni)

Cumulative deficit from October 1, 2002 to: 
   December 31, 2002 (indicative target)-25.8
   March 31, 2003 -24.2
   June 30, 2003 (indicative target)-31.1
   September 30, 2003 -37.5

Definitions

2. The general government budget is defined to include the republican budget, local (including municipal) budgets, and all extra-budgetary funds at all levels of general government, including the social protection fund (SPF) but excluding the externally financed public investment program. The overall cash deficit of the general government is defined from the financing side as the sum of the following:

(i) The change in net claims (transactions) of the NBT on the general government which includes all deposits of the general government with the NBT, counterpart deposits (which reflect balance of payment and/or general budget support from IFIs and other donors), NBT loans and advances to the general government, NBT holdings of government securities, bank restructuring costs, and the privatization account (where proceeds from the privatization of state property are held);

(ii) The change in net claims (transactions) on the general government of the rest of the domestic banking system which are defined to include the net position of the general government with respect to other domestic commercial bank assets (loans, overdrafts, cash advances, holdings of treasury bills or other securities) and liabilities (deposits, etc.);

(iii) The change in net claims (transactions) on the general government of domestic nonbank institutions and households is defined to include net sales of treasury bills, bonds or other government securities to nonbank institutions and households (including nonresidents and nonresident financial institutions), plus any other increase in liabilities of the general government to domestic nonbank institutions or households. Included in this item are also compensation payments (-) to Tajik Rail for its servicing of external debt to Uzbekistan;

(iv) Gross proceeds from the privatization of state property, which are kept in a separate account with the NBT, are defined as all receipts originating from the sale of state property; and

(v) Net foreign financing of the general government which is defined as the difference between gross disbursements of foreign financing and amortization of government debt to foreign financial and nonfinancial institutions.

3. The augmented deficit of the general government is defined from the financing side as the sum of the same items as in the definition of the overall cash deficit of the general government plus the counterparts (-) to increases in net credits or net claims on the general government from the NBT or commercial banks as a result of the resolution of the bad loans problem under the bank restructuring program. These counterparts consist of the full value of the loans taken over by the government.

4. Monthly data on net claims of the domestic banking system on the general government are taken from the balance sheets of the NBT and commercial banks. The Ministry of Finance shall provide information on, and confirm the amounts of general government deposits held abroad, disbursements of foreign loans to the general government, net sales of treasury bills and other securities, borrowing from the nonbank sector, as well as gross receipts and expenditures of the central government privatization account. It shall provide detailed monthly data on: (i) revenues, expenditures and lending operations of the state and local budgets, as well as all budgetary and extra-budgetary funds; (ii) quasi-fiscal operations; (iii) estimates of the outstanding stock of wage and pension and all other domestic expenditure arrears; and (iv) estimates of the outstanding stock of tax and other revenue arrears to the general government.

Adjustors

5. The ceiling on the cumulative overall fiscal deficit will be adjusted downward by 100 percent for any overdue or rescheduled interest obligations.

B. Tax Collection of the Ministry of State Revenues and Duties

Table 2. Floor on the Tax Collection of the Ministry
of State Revenues and Duties

 (In millions of somoni)

Cumulative revenues from October 1, 2002 to:
   December 31, 2002 (indicative target)  93.3
   March 31, 2003 191.3
   June 30, 2003 (indicative target)302.6
   September 30, 2003 401.0

Definitions

6. Tax collection include all taxes collected by the Ministry of State Revenues and Duties. With regard to internal taxation excluded from the definition is: any tax offsets or in-kind payments, sales taxes on cotton and aluminum exports, taxes, charges, and fees collected by the Social Protection Fund, and any proceeds from loans, or other banking system credits, the issuance of securities, or from the sale of state assets. With regard to foreign taxes, custom revenues are defined to include import duties, export duties and taxes, customs duties, exchange taxes, and other taxes (including VAT) on international trade and transactions.

C. Limits on the Stock of Net Domestic Assets of the NBT

Table 3. Ceiling on the Stock of Net Domestic Assets of the NBT
 

(In millions of somoni)


December 31, 2002 (indicative target)

97.8

March 31, 2003

87.7

June 30, 2003 (indicative target)

91.5

September 30, 2003

55.5


Definitions

7. Net domestic assets of the NBT are defined as: reserve money minus net foreign assets of the NBT. Reserve money is composed of currency in circulation, required reserves, other bank reserves, and deposits of non-government non-banks with the NBT. Net foreign assets of the NBT includes net international reserves in convertible currencies. The NBT's net domestic assets comprises the following assets and liabilities: net credit to the general government, claims on banks, credit to the economy, and other items net (OIN). OIN includes, the foreign exchange re-valuation and capital accounts of the NBT.

8. The NDA ceiling should be also adjusted for changes in reserve requirements, in accordance with the following formula:

        ∆NDA = ∆rBο + rοΔB + ΔrΔB

where rο denotes the reserve requirement ratio prior to any change; Bο denotes the programmed level of the reservable base money in the period prior to any change; ∆r is the change in the reserve requirement ratio; and ΔB denotes the immediate change in the reservable base with respect to the programmed base money level as a result of changes in the definition.

Adjustors

9. The ceiling on net domestic assets of the NBT will be adjusted: (i) downward/upward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) downward/upward by 100 percent for the excesses/shortfalls of privatization receipts; and (iii) downward by 100 percent for any overdue or rescheduled debt service obligations.

D. Limits on Net Credit of the Banking System to General Government2

Table 4. Ceiling on Net Credit of the Banking System
to General Government

 

(In millions of somoni)


December 31, 2002 (indicative target)

  -75.6

March 31, 2003

  -81.3

June 30, 2003 (indicative target)

  -78.5

September 30, 2003

-113.8


Definitions

10. Net credit of the banking system to the general government is the sum of net credit from the NBT to general government and net credit from the rest of the domestic banking system to general government, both as defined in section A above.

Adjustors

11. The ceiling on net credit of the banking system to general government will be adjusted: (i) downward/upward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) downward/upward by 100 percent for the excesses/shortfalls of privatization receipts; and (iii) downward by 100 percent for any overdue or rescheduled debt service obligations.

E. Net International Reserves

Table 5. Floor under the Stock of Net International Reserves
of the NBT in Convertible Currencies

(In millions of U.S. dollars)

December 31, 2002 (indicative target)22.4
March 31, 200326.0
June 30, 2003 (indicative target)27.3
September 30, 2003 42.4

Definitions

12. Total net international reserves of the NBT are defined as the difference between total gross international reserves of the NBT and total reserve liabilities of the NBT. Total gross international reserves of the NBT are defined as the NBT's holdings of monetary gold, holdings of SDRs, any reserve position in the IMF, holdings of convertible currencies in cash or in nonresident banks that are readily available. Also included are holdings of foreign currency-denominated securities issued by governments or central banks of OECD member states. Excluded are capital subscriptions in foreign financial institutions, non-liquid assets of the NBT, convertible currency denominated claims on domestic banks and other residents, assets in non-convertible currencies, foreign assets pledged as collateral or otherwise encumbered and the net forward position, if any (defined as the difference between the face value of foreign currency denominated NBT off balance sheet claims on nonresidents and foreign currency obligations to both residents and non-residents). Reserve liabilities of the NBT are defined as outstanding IMF credit, and liabilities of the NBT to nonresidents with an original maturity of up to and including one year.

13. For the purpose of program monitoring, U.S. dollar denominated components of the balance sheet will be valued at the program exchange rate, and other foreign currency denominated items will be valued at cross rates between the program exchange rate of the U.S. dollar and current official exchange rates of the U.S. dollar against those currencies. Official gold holdings shall be valued at US$320.0 per troy ounce.

14. Fund staff will be informed of details of any gold sales, purchases, or swap operations during the program period, and any resulting changes in the level of gross foreign reserves that arise from revaluation of gold will be excluded from gross reserves (as measured herein).

Adjustors

15. The floor on net international reserves of the NBT will be adjusted: (i) upward/downward by 100 percent for excesses/shortfalls of the disbursement of (non-project) foreign loans and cash grants; (ii) upward/downward by 100 percent for the excesses/shortfalls of privatization receipts in foreign exchange; and (iii) upward by 100 percent for any overdue or rescheduled debt service obligations.

F. Limits on Short-, Medium-, and Long-Term External Debt

Table 6. Cumulative Ceiling on the Contracting and Guaranteeing of External Debt
 0-1 Year MaturityOver 1 Year Maturity

During the period from end-September 2002 to: 
   December 31, 2002 (indicative target)00
   March 31, 2003 00
   June 30, 2003 (indicative target) 00
   September 30, 2003 00

Definitions

16. The external debt limits (short-, medium- and long-term) apply to the government of Tajikistan, the National Bank of Tajikistan and any other agency acting on behalf of the government. For short, medium- and long-term external debt, the performance criterion applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85), adopted August 24, 2000), but also to commitments contracted or guaranteed for which value has not been received.

17. The definition of debt set forth in point No. 9 of the guidelines reads as follows: "(a) For the purposes of this guideline, the term "debt" will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future points in time; these payments will discharge the principal and/or interest liabilities under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property. (b) Under the definition of debt set out in point 9(a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt."

18. External debt limits apply to the contracting or guaranteeing of new nonconcessional short term external debt (with an original maturity of up to and including one year), and to the contracting or guaranteeing of new nonconcessional medium- and long-term external debt (with original maturities of more than one year).

19. Excluded from the external debt limits are loans contracted for the purpose of debt rescheduling or refinancing if the terms of the new loan are more favorable. IMF credit is excluded from the external debt limits. The performance criterion on new nonconcessional short-term external debt will not apply to loans classified as international reserve liabilities of the NBT (liabilities of the NBT to nonresidents with an original maturity of up to and including one year). Normal import-related financing is excluded from the performance criterion on new short-term external debt.

20. Debt falling within the external debt limits that are denominated in currencies other than the U.S. dollar shall be valued in U.S. dollars at the exchange rate prevailing at the time of contracting or guaranteeing takes place or at the exchange rate stipulated in the contract.

21. For the purposes of the program, the guarantee of a debt arises from any explicit legal obligation of the government or the NBT or any other agency acting on behalf of the government to service such a loan in the event of nonpayment by the recipient (involving payments in cash or in kind), or indirectly through any other obligation of the government or the NBT or any other agency acting on behalf of the government to finance a shortfall incurred by the loan recipient.

22. Concessionality will be based on currency-specific discount rates based on the OECD commercial interest reference rates (CIRRs). For loans of an original maturity of at least 15 years, the average of CIRRs over the last 10 years will be used as the discount rate for assessing the concessionality of these loans, while the average of CIRRs of the preceding six-month period will be used to assess the concessionality of loans with original maturities of less than 15 years. To the ten-year and six month averages of CIRRs, the following margins will be added: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15-19 years; 1.15 percent for 20-30 years; and 1.25 percent for over 29 years. Under this definition of concessionality, only loans with grant element equivalent to 35 percent or more will be excluded from the debt limits.

II. Continuous Quarterly Targets

A. No Directed Credits by the NBT

23. The NBT will not issue any directed credits. These involve credits that are issued in the absence of a competitive auction or on non-market terms and conditions. This requirement will be monitored on the basis of changes in the NBT's balance sheets supported by the NBT's regular reporting on the results of its credit auctions, including interest rates, and amounts bid and received.

B. No Non-Core Activities of the NBT and no Dividend Payments by the NBT

24. The NBT will not make any expenditures not related to its core business activities or pay dividends while it has negative net worth.

C. No New External Payments Arrears

25. No new external payments arrears shall be accumulated at any time under the PRGF arrangement, excluding those which are subject to negotiation among creditors. External payments arrears are defined as overdue debt service arising in respect of obligations incurred directly, guaranteed, or converted into interstate debt by the government of Tajikistan or the NBT, including penalties or interest charges.

D. Exchange and Payments Arrangements

26. Over the next six months, the Republic of Tajikistan will not: (i) impose or intensify restrictions on the making of payments and transfers for current international transactions; (ii) introduce or modify multiple currency practices; (iii) conclude bilateral payments agreements which are inconsistent with Article VIII of the IMF's Articles of Agreement; or (iv) impose or intensify import restrictions for balance of payments reasons.

E. No Expenditure Arrears of the General Government

and of the Social Protection Fund

27. No new arrears of the general government on wages and of the Social Protection Fund on transfer payments to its regional offices shall be accumulated at any time under the PRGF arrangement.

28. For purposes of the performance criterion, expenditure arrears shall be defined as any shortfall in monthly disbursements on wages and in transfers from the Social Protection Fund to its regional offices related to the planned payments. A monthly disbursement plan will be presented to the Fund staff by the 15th day of the month preceding the month of actual wage and pension payments.

29. To permit monitoring as defined above, the government will provide data on actual wage payments and on transfers from the Social Protection Fund to its regional offices to the IMF staff in the form of treasury reports and statements from the Social Protection Fund on a monthly basis no later than 14 days after the end of each month.

III. Quarterly Indicative Target

A. Reserve Money

Table 7. Indicative Limits on the Stock of Reserve Money of the NBT
 (In millions of somoni)

December 31, 2002 165.1
March 31, 2003165.8
June 30, 2003 173.2
September 30, 2003 182.6

Definition

30. Somoni reserve money of the NBT is defined as the sum of: (i) domestic currency issued by the NBT; (ii) deposits of commercial banks and other financial institutions held with the NBT; and (iii) deposit liabilities of the NBT with respect to the public. Deposits of the general government are excluded from reserve money, but are included under NDA. NBT reserve money liabilities with respect to commercial banks and other financial institutions comprise all deposits held by these institutions at the NBT, including required reserves and excess reserves held in the correspondent accounts, but excluding NBT liabilities held by commercial banks and other financial institutions in the form of short term NBT notes. Deposit liabilities of the NBT to the public include all deposits placed at the NBT, in domestic or foreign currency, by the nonbank public.


1Quantitative targets for September 2002 to March 2003 are based on a program exchange rate of SM 3.0 = US$1 and SDR 1 = US$1.299. Quantitative targets for June to December 2003 are based on a program exchange rate of SM 3.0 = US$1 and SDR 1 = US$1.333, unless otherwise indicated.
2The change in net credit to general government in the NBT balance sheet may differ from the change in NBT net claims (transactions) on the general government shown in the fiscal accounts because the NBT balance sheet revalues the stocks of the net general government according to the program exchange rate.

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